Mike Brady: 'So what if most farmers can't afford to buy land? The alternative is communism'
In recent months the market for land in Ireland has thrown off the shackles of the recession and burst into action. Analysis of public auctions for the first six months of the year show an increase of 8pc paid for an acre of land when compared to last year.
A recent Central Statistics Office (CSO) land report showed that in 2017 there were 32,990 acres of land sold in Ireland for a combined total of €161million. The area sold was down 2.9pc on 2016, but the amount sold annually in this country is just a drop in the ocean of 11 million acres used for agricultural purposes.
This minute volume of annual land sales (0.3pc) puts into perspective the uproar over high-profile purchases of land by land speculators and successful dairy farmer and equine interests.
In fact, if one person purchased all the land available for sale in the country it would take 333 years to buy the entire country, based on 2017 figures!
It was recently reported that vulture funds control in excess of 28,000 acres throughout the country, and the mainstream banks probably control a lot more.
While I accept this a terrible situation for the individual farmers who are in financial difficulty, is it really of any concern to the State if all of this land was purchased by one anonymous individual in an online auction?
All farmers would love to buy the farm next door, but the harsh reality is that most can't afford this holy grail.
The income earning capacity of the average farm business, regardless of whether it's dairy, beef, sheep, arable or equine, is nowhere near enough to even consider buying land.
The National Farm Survey highlights this fact, calculating the average Family Farm Income (FFI) for 2017 at just €31,412.
So, who can afford to buy land, if the majority of farmers cannot afford to buy it?
In my experience the following categories of people purchase land in Ireland:
Farmers who sell development land
Most farmers who sell land for housing or commercial development reinvest most of the proceeds back into land. It is what they know and understand.
To the outside observer they are just ordinary farmers, but many are canny investors who look at the long-term development potential of the land - and the capital appreciation over time is just as important as the annual farm income.
Farmers whose land is subject to CPOs
Farmers whose land is acquired by Compulsory Purchase Order (CPO) for roads etc usually get ready cash for reinvestment into land.
When the economy is going well, taxation receipts increase, allowing governments to fund large infrastructural projects - a portion of this funding flows down to landowners.
Farmers with large, successful businesses
Large, established farm businesses have borrowing capacity and the potential to generate surplus cash which can be reinvested into land.
Dairy farmers have been strong in the land market in 2018 after a very profitable 2017. We will see a lot more farms bought by large dairy farmers in the next decade.
Many have invested heavily in livestock and buildings since the removal of milk quotas as these loans are paid down - land is the obvious next investment.
The large successful equine businesses also fall into this category.
Hobby farmers and investors
When the domestic economy is strong, business people make money, incur tax liabilities and look for opportunities to invest surplus cash.
Recent strong sales recorded in the outskirts of Dublin and Cork suggest the land speculator has returned to the market.
The huge shortage of houses in this country has local authorities under pressure to zone land to kickstart building in residential areas with good services so that we can provide houses for our youth in the years ahead.
Pension and investment funds investing in forestry also fall into this category.
So clearly there is a wide variety of people purchasing land in Ireland today. The positive fact is that the vast majority are Irish, unlike countries like Brazil where they had to introduce laws to limit foreign ownership.
It is difficult to see any particular category of purchaser dominating the market in Ireland on a national basis.
However, there will be local dominance. Clearly the speculator will dominate the land with potential in and around towns and cities, the dairy farmer will be the strongest for land alongside the exiting grazing platform and the equine interests will purchase quality land to strengthen their enterprise.
Ireland is a successful capitalist country, so successful businesses - farming or non-farming - will consider the purchase of land for investment; banks and vulture funds will look to sell land held as security to recover bad loans from unsuccessful businesses.
This is how capitalism works. So, unless we wish to change to socialism or communism, it is best to let the land market find its level - if it's not broken, why fix it?
Mike Brady is managing director at Brady Group agricultural consultants & land agents, email: email@example.com
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